Consultation with employees about redundancy: what is required?


Consultation with employees about redundancy: what is required?

The increased redundancy entitlements for federal award employees delivered by the Australian Industrial Relations Commission in March 2004 make it even more important than ever for employers to get the process right.


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The increased redundancy entitlements for federal award employees delivered by the Australian Industrial Relations Commission in March 2004 make it even more important than ever for employers to get the process right. (See previous story).


Apart from the specific legal obligation to consult with employees in some cases of multiple redundancies (see below), it is necessary for both the employee selection and implementation processes to be justifiable and fair. If not, there is the potential that claims of unfair dismissal by employees will be successful, and employees will be either reinstated or receive higher payouts.


The consultation obligation


The federal Workplace Relations Act 1996 requires an employer who intends to retrench 15 or more employees for reasons of an economic, technological, structural or similar nature to notify Centrelink of the impending retrenchments in detail, and also to consult with any unions that represent those employees over the impact and possible mitigation of the retrenchments.


Failure to do so may result in financial penalties imposed on the employer, plus the Australian Industrial Relations Commission has the power to issue remedial orders that have the effect of placing employees in the same position as if consultation had occurred.


What does 'consultation' require in this situation?


 Firstly, it must be genuine consultation, that is, a situation where both parties discuss the situation and its impact and explore possible courses of action. The scope of this includes possible alternatives to redundancyfor a discussion of possible options, see previous story.


Other relevant factors are: timing of the process; method of implementation; outplacement and job seeking assistance; possible referrals to other employers; retraining assistance and financial planning. Not all of these will be feasible, or even necessary, in every case, but they should at least be explored and evaluated jointly.


It would not be genuine consultation for an employer to announce that redundancies were about to occur and that various forms of payment and assistance would be made available. Rather, the process and assistance need to be discussed in advance, not presented as non-negotiable 'information'. This does not mean that consultation needs to occur over the employer’s business reasons for making the decision. The requirement does not cover joint decision-making over whether to make employees’ jobs redundant – that remains the employer’s prerogative.


Procedural fairness required


As well as the legal requirements relating to notice periods, severance pay, etc, employers are required to implement redundancies in a procedurally fair manner. 


The consultation requirements fall within the scope of procedural fairness. In addition, the employer must be able to demonstrate that the selection criteria used to determine which employees are to be made redundant were fair and objective and that the individual circumstances of employees were taken into account.


Awards and agreements may contain provisions that set out clear procedures for selecting employees, such as 'last-on first-off'. Equal opportunity legislation also prohibits employers from making redundancy selection decisions based on personal attributes such as sex, race, age, family/carer responsibilities, health of the employee etc. These requirements obviously must be addressed to start with, but there are a number of other factors that employers may wish to take into account. The main one is merit –each employee’s actual value to the organisation.


Selecting on basis of performance and potential


There are obviously strong arguments in favour of retaining those employees who are best suited to the current and future needs of your organisation. If the redundancy decision is based on the employee’s performance and potential, there is an obligation to discuss the reasons for arriving at the decision with the employee.


In other words, before confirming your decision to select the employee for redundancy, you need to explain why you are doing so, and give the employee the opportunity to respond to the assessment – for example, to present any mitigating circumstances or correct any wrong assumptions. If the employee presents significant information, you need to reconsider your decision. This is the same principle that applies to the performance management process in general, and to ignore it when there are mitigating circumstances may risk receiving a claim of unfair dismissal.


This means that the selection process must be transparent. Selection criteria need to be published in advance. It must be possible to prove that they are objective, valid, fair and non-discriminatory. For example, the criteria should be based on a wide range of evidence and not dependent on one person’s opinion. A built-in review procedure will also help.


If the organisation uses a standard performance appraisal process (not just for this purpose), be able to demonstrate that steps have been taken to preserve its objectivity, such as training appraisers and regularly reviewing assessment criteria. It will help if a consultative process was used to establish the appraisal system in the first place.


Further, if there have been problems with the employee’s job performance, they should have been raised with the employee earlier, through a performance management process. To tell an employee for the first time at a pre-redundancy interview that his/her job performance is unsatisfactory and has led to him/her be considered for redundancy will also risk an unfair dismissal claim, even if you do give the employee an opportunity to respond at this stage. This is because the employee has had no opportunity to remedy his/her performance shortcomings.


Many cases have been lost in courts and tribunals because employers were unable to prove that their selection criteria were fair and/or implemented fairly. It may be time-consuming to develop fair criteria to begin with, but it is likely to pay off later on. In some cases, the decision has been that further consultation with employees was not necessary if the need for redundancies was genuine and all the performance management requirements have already been applied in a fair and transparent manner.


Finally, the reasons given for making employees redundant must be genuine, not contrived – for example, in an attempt to avoid legal obligations.


Note again that this consultation with the employee applies to the performance-related reasons for selecting him/her for redundancy, not to establishing that redundancy of someone is necessary.


'Best practice' case studies


Two of the most successful major redundancy implementations in Australia have been BHP’s closure of its Newcastle, NSW, plant in 1999 and the closure of Nissan Australia’s local car-making operation in 1992. Both events provide an indication of the scope of issues that redundancy consultations can cover. It is fair to note that BHP was a very large organisation and Nissan was bankrolled by a Japanese parent company, so the total of what they provided may be beyond the scope of most other employers, but they do demonstrate the range of issues that can be considered.


Nissan closed down its factory progressively over about one year, phasing out its car models one by one, with only the most popular model remaining in production for the full year. It announced these dates up-front. It set specific dates for the redundancies to match this strategy, and provided employees with various forms of assistance, but also with bonus payments if they remained with Nissan until their allocated dates instead of leaving as soon as a job offer came up.



BHP’s package included the following in addition to severance payments:

  • job search and career planning workshops;
  • assistance with placement with other employers in Newcastle or BHP companies elsewhere;

  • assistance with retraining or further education for those who were interested;

  • assistance with starting their own businesses for those who were interested;

  • retirement planning and financial planning seminars;

  • assistance with coping with change and preparing for redundancy;

  • regular one-on-one communications of progress, and discussions with an allocated HR staff member.



Redundancy requires consultation

What consultation means in redundancy situations

Consultation required before redundancy've been selected for redundancy

Unfair dismissal because redundancy was badly managed

Worker wins back job after 'flawed' redundancy selection



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